April 2023

  A week or two ago, I read a great article in The Economist and it was talking about a new form of gambling that seems to have taken hold in the United States, and it’s trading options just hours before they expire. As many of you already know, options can be bought 30, 60, 90 days, sometimes even longer out, and they become quite volatile in the last few hours of trading. In the graph below you can see just how much this activity has increased since all the GameStop traders started getting involved in the stock market post-COVID. In fact, in early 2020 before COVID really took hold, daily transaction volume was just 20 million transactions. It rose to 40 million in one year. This year, in February, we saw an average of 45 million options trades per day, and one day it peaked at 68 million so…

  A question came up recently: what is a central bank digital currency and why should we even care? Well, a central bank digital currency is in essence a digital form of the country’s fiat currency issued and regulated by a central bank, or to put it another way, it’s a digital dollar bill. Not to be confused with crypto, which is decentralized and not backed by any institution. There are two types of these devices. One is wholesale, one is retail. Wholesale central bank digital currencies are for interbank relationships. Really, the benefit of that will just be simplicity, reduced costs, more rapid transfers. It’s going to be part of the plumbing of the financial system. Doesn’t really affect you and me. What would affect you and me though, is the retail version that could be used for public transactions. Think of it as digital dollars in a digital…

  So there’s been a lot written about the importance of the US dollar being the global reserve currency. What happens if we lose that status and is that even likely? Periodically, you’ll read this discussion about the reserve currency status and how with the debt and other factors, the United States is at risk of losing that status. A couple of questions will follow. One is “so what?” And two is “what does it mean?” First, what is the reserve currency? A reserve currency is basically a core currency that’s used for global trading. It’s a currency that people in other countries want to hold, and the fact of the matter is that the United States is not only a core currency, it is the preeminent core currency. The two other major core currencies are the euro and the renminbi from China. Why is it important? Why do we…